With Treasury yields near multiyear highs, some investors are rethinking their portfolio strategies With U.S. Treasury yields on the rise, financial planners say they’re seeing a growing interest in bonds, especially among investors looking to secure fixed income in retirement. After steadily rising over the past five years from their pandemic-era lows, Treasurys with maturities of five years and longer have passed 5% in the past few weeks.
Yields on shorter-term bonds have been rising, too: The 1-year Treasury bill had a 4.55% yield as of early Wednesday afternoon, while the 3-year note was 4.99%. While it might be tempting to turn to longer-term bonds that promise bigger interest payouts every six months, financial planners warn that investors putting all their eggs in one basket are more vulnerable to inflation and interest-rate volatility. Investing in shorter-duration Treasurys or inflation-protected options such as TIPS or I-bonds can be a better place to start — but don’t abandon your stocks, either. **Deep dive:**Now’s your chance to make money during the best bond market for yields in decades — if you get over Treasury jitters Don’t Short Yourself offers weekly money tips to help you earn it, stack it and grow it.
I would like to receive updates and special offers from Dow Jones and affiliates. I can unsubscribe at any time. Mel Mattison, an author and certified financial planner, said that if he were retired, he would be going all-in on 20-year Treasury bonds , which had a yield of 5.68% as of early Wednesday afternoon.
Baby boomers typically start buying bonds around the 5.5% level, he said, and his thinking is that a 70-year-old with $2 million mostly in equities could move that money to 20-year bonds and earn $110,000 a year. A guaranteed $110,000 in annual fixed income might sound ideal, but other financial planners warn it’s not so simple. If an investor used a significant portion of their financial assets to lock in long-term Treasurys, they would be locking in their income, too.
The semiannual interest payouts would stay the same for 20 years, while their expenses would vary. That’s an important consideration for retirees, who often underestimate their long-term costs. **Opinion:**Why the upcoming jobs report could send 10-year and 30-year Treasury yields surging “If short- to medium-term inflation runs even slightly above expectations for several consecutive years, it permanently lowers their real purchasing power,” said Sean Lovinson, founder of the financial-planning firm Purpose Built in Moorestown, N.J. That’s not necessarily good news.
Even if rates don’t go up, someone relying too much on fixed income could find themselves lacking the liquidity needed for an unexpected emergency expense, such as a medical bill or home maintenance. That emergency could force an investor to cash out early after interest rates have risen, meaning they would have to sell their bond at a discount on the secondary market and permanently lock in a loss. There are also tax considerations.
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